Can an Exit subfranchisor be held liable for any act of the franchisee?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
- (B) Under no circumstances shall either party be liable for any act, omission, contract, debt, or other obligation of the other party. Franchisee shall indemnify defend (with legal counsel reasonably acceptable to the indemnitee) and hold Subfranchisor, EXIT and their Affiliates, officers, directors, employees, and officials harmless against any such claim and the cost (including reasonable attorneys' fees) of responding to, defending, settling or paying each such claim arising, directly or indirectly, from, as a result of, or in connection with Franchisee's operation of the Franchisee's business during and after the term of this Agreement. This indemnification shall specifically include claims from franchisees relating to all services which Franchisee has agreed or subsequently agrees or undertakes to perform on Subfranchisor's behalf. Subfranchisor shall indemnify and save Franchisee harmless against any claim arising, directly or indirectly, from or as a result of Subfranchisor's acts, omissions, contracts, debts, or obligations, and against the cost of defending against any such claim. Franchisees have no obligation to indemnify or hold harmless an indemnified party for losses to the extent that they are determined to have
been caused solely and directly by the indemnified party's gross negligence or recklessness, willful misconduct, strict liability, or fraud.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the agreement explicitly states that neither the subfranchisor nor the franchisee is liable for the actions or obligations of the other. The franchisee operates as an independent contractor and is not authorized to make any agreements or representations on behalf of the subfranchisor. This aims to protect the subfranchisor from potential liabilities arising from the franchisee's business operations.
However, the franchisee is required to indemnify, defend, and hold the subfranchisor harmless against any claims and costs, including attorney's fees, resulting from the franchisee's operation of the business. This indemnification extends to claims from franchisees relating to services the franchisee performs on the subfranchisor's behalf. Conversely, the subfranchisor must indemnify the franchisee against claims arising from the subfranchisor's acts or omissions.
It's important to note that franchisees are not obligated to indemnify the subfranchisor for losses caused directly by the subfranchisor's gross negligence, recklessness, willful misconduct, strict liability, or fraud. This provision ensures that the subfranchisor cannot be indemnified for their own wrongful actions. This section clarifies the financial responsibilities and liabilities of both parties, ensuring that each is responsible for their own actions while also providing a layer of protection for the subfranchisor against the franchisee's operational risks, barring certain misconduct on the subfranchisor's part.